The pandemic-era luxury boom has turned into a bust, crippling some of the industry’s most prominent players.
The latest victim was the French owner of Gucci and Yves Saint Laurent, Kering.
In a rare and ominous note published a month before Kering’s first-quarter results were released, the company said its sales would be down by approximately 10% compared to 2023. If you zoom in, the situation gets even worse: revenue at Kering’s biggest brand, Gucci, could be down 20% in the first quarter compared with the same period last year.
That’s a sharp drop for the company, but not much of an anomaly given the French luxury retailer’s difficult year.
Kering blamed the unexpected drop on lower demand for luxury goods, especially in the Asia-Pacific region.
The decline of the luxury market has been widely discussed, and many examples of this trend have emerged. Demand from Chinese shoppers has become a common concern for luxury brands as they count on the country’s economic recovery to spur higher spending on high-end goods. This has not met the expectations of brands, although there are early signs of recovery.
Beyond Asia’s appetite for luxury, major players including French conglomerate LVMH and handbag maker Hermes have managed to withstand the downturn after initial setbacks. But others are not doing so well.
Take Burberry, for example: the British raincoat company’s sales have fallen recently. In January, the company cut its full-year profit forecast after seeing sluggish demand during the peak holiday season, when luxury goods sales typically boom. Kering’s warning further confirms that the luxury industry is still far from recovering, let alone booming again.
Shares in the Parisian luxury fashion giant fell 13.6% at 12pm London time on Wednesday.
Kering representatives did not return immediately Luckrequest for comments.
Revival of the Gucci brand
In its annual report last month, Kering noted that 2024 will remain difficult year due to macroeconomic pressures and investments to support the Gucci brand.
The iconic brand, which accounts for half of Kering’s annual sales, has suffered as rivals rush ahead as consumers spent on luxurylosing valuable business and market share.
“Gucci doesn’t resonate well with higher-value affluent consumers because it has never had to, and has never been able to, close that gap,” Flavio Cereda, co-investment manager for GAM Luxury Brands investment strategy at GAM Investments, said in a February note. sent to Luck.
“Over the past 4 years, Gucci has suffered from decisions made during the pandemic to protect profits rather than invest in marketing to drive growth, as other key players have done
sector. Investors welcomed the pivot in strategy,” HSBC analysts wrote in a note following Kering’s full-year results in February.
However, change may be on the horizon. Gucci is in the process of transformation under the leadership of new management and creative director Sabato De Sarno. His Ancora collection has been available in select stores since last month and is expected to help chart the path forward for Gucci.
The luxury industry has also entered a period of normalization, analysts say, meaning the first half of the year will be boring, especially compared to the same period a year ago.
“Gucci does have significant potential: the supply chain is strong, the heritage is very strong, the retail network is global and cash generation continues to matter. But at the moment there is no obvious short-term catalyst,” Sereda said.